Incomes, Exchange Rates and the U.S. Trade Deficit, Once Again
This paper discusses recent developments in the empirical modeling of U.S. import and export flows, and the implications for adjustment of the trade balance in response to changes in the value of the dollar and relative incomes. The results of examining the behavior of trade flows in the period spanning the late 1990â€™s boom and dollar appreciation are also reported. The estimates for the updated data do not exhibit the income asymmetry typically found in other studies, although a reduction in the current account would require a substantial real depreciation, holding all else constant.
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